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THE ECONOMICS OF MEDICAID
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THE ECONOMICS OF MEDICAID  Assessing the Costs and Consequences EDITED BY JASON J. FICHTN ER
An earlier version of chapter 3 was published by Jason J. Fichtner and John Pulito as    Medicaid Overview     Mercatus Re...
CONTENTS Introduction   .....................................................................................................
Part 4  Medicaid   s Health Care Failures and Possible Reforms Chapter 7  Reforming Medicaid.................................
   Medicaid pays the full freight for most healthcare services  with few out of pocket costs  but compensates by sanding d...
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INTRODUCTION JASON J. FICHTNER  M  edicaid is now the largest health insurance provider in the United States. Unlike Medic...
INTRODUCTION  the initial rollout and implementation of the ACA, it is imperative to consider how significantly the ACA wi...
JASON J. FICHTNER  out the ability of the federal government and the states to pay for other government services. Part 3 o...
INTRODUCTION  out the financial trouble Medicaid was in before the ACA and how the ACA will only exacerbate a troubled pro...
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PART 1   CHALLENGES FACING MEDICAID
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CHAPTER 1   THE STRUCTURE OF MEDICAID  JOSEPH ANTOS  M  edicaid is the primary means of financing health care for America ...
THE STRUCTURE OF MEDICAID  expanded eligibility for Medicaid well beyond federal minimums. Poorer states that need more he...
JOSEPH ANTOS  tain. Moreover, because the federal government shares in the cost of Medicaid with the states, it also share...
THE STRUCTURE OF MEDICAID  every low-income individual, however, is eligible for Medicaid. The federal government has esta...
JOSEPH ANTOS  The law also provides that no state can have a match rate lower than 50 percent or higher than 83 percent of...
THE STRUCTURE OF MEDICAID  Table 1. Eight Highest Recipients of Federal Medicaid Spending, 2011 State  Federal spending  m...
JOSEPH ANTOS  Figure 1. Top 10 and Bottom 10 FMAP Averages, 2004   13 90       80       70       60       50       40     ...
THE STRUCTURE OF MEDICAID  Medicaid accounts for a major portion of state budgets. In fiscal year  FY  2012, Medicaid repr...
JOSEPH ANTOS  increase in their FMAPs starting in 2009. The increase was phased out during the first six months of 2011. A...
THE STRUCTURE OF MEDICAID  The sharp drop in federal matching payments was an unprecedented event that forced states to ta...
JOSEPH ANTOS  lion. On balance, hospitals gain  10 million in revenue. If the FMAP is 60 percent, the federal government w...
THE STRUCTURE OF MEDICAID  States provide supplementary payments to hospitals that serve large numbers of low-income and u...
JOSEPH ANTOS  after a particular financing technique has been in widespread use. This is unavoidable under Medicaid   s sh...
THE STRUCTURE OF MEDICAID  new Medicaid patients, but 92 percent would take new patients who pay their own bills without t...
JOSEPH ANTOS  Table 2. Outcomes for Surgical Patients, Adjusted for Patient and Hospital Characteristics Outcome  Private ...
THE STRUCTURE OF MEDICAID  These negative results are confirmed by other studies, which also show a greater frequency of l...
JOSEPH ANTOS  Several state governors have indicated that they need more flexibility in running their programs before they...
THE STRUCTURE OF MEDICAID  CONCLUSION  Medicaid is the largest public health program for low-income Americans. The ACA rel...
JOSEPH ANTOS  Health Politics, Policy and Law 38, no. 1  2013 , 179   186, http   jhppl.dukejournals .org content early 20...
THE STRUCTURE OF MEDICAID  22.  Vernon K. Smith et al.,    Moving ahead Amid Fiscal Challenges  A Look at Medicaid Spendin...
JOSEPH ANTOS  Structure, Critical Payments  Washington, DC  National Health Policy Forum, September 14, 2004 , http   www....
THE STRUCTURE OF MEDICAID  American-Statesman, July 21, 2012, http   www.statesman.com opinion insight  human-services-chi...
CHAPTER 2   MEDICAID   S COST DRIVERS JUNE O   NEILL  M  edicaid is the primary source of health care funding for America ...
MEDICAID   S COST DRIVERS  Figure 1. Total Medicaid Payments, Fiscal Years 1975   2010  In     Millions        Figure     ...
JUNE O   NEILL  same period, spending on Medicaid increased as a share of NHE, from 10 percent of NHE to 15 percent. Measu...
MEDICAID   S COST DRIVERS  newly covered beneficiaries for a period of three years. After that, the federal payment is sch...
JUNE O   NEILL  States vary considerably with respect to the relative size of their low-income populations and population ...
MEDICAID   S COST DRIVERS  Table 1. Growth in National Health Expenditures  NHE  and in Selected Spending Sources, Percent...
JUNE O   NEILL  led to additional enrollments and higher Medicaid costs. At the same time, states were financially stresse...
MEDICAID   S COST DRIVERS  Table 2. Distribution of Medicaid Recipients and Medicaid Payments by Eligibility Group and Med...
JUNE O   NEILL  of the four groups to do so. The increase, however, was modest. Over the 20-year period, the children   s ...
MEDICAID   S COST DRIVERS   35,000. Only 2.4 percent of the total Medicaid population used nursing home facilities in 2010...
JUNE O   NEILL  Many of the disabled who qualify for Medicaid also receive cash benefits from the SSI program. In most sta...
MEDICAID   S COST DRIVERS  could not apply for any federal matching money. The donations rule enabled hospitals to make a ...
JUNE O   NEILL  for 15.4 percent of total Medicaid spending. Accounts surfaced that DSH payments were not being used for t...
MEDICAID   S COST DRIVERS  Medicaid now covers medical care for one-fifth of the US population. The expansion of Medicaid,...
JUNE O   NEILL  NOTES 1.   Some people are enrolled for only part of the year. Taking that fact into account, the Congress...
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PART 2   MEDICAID   S BUDGETARY IMPACT
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CHAPTER 3   THE FEDER AL SIDE OF THE BUDGET EQUATION JASON J. FICHTNER  O  ften called an afterthought to the Medicare pro...
THE FEDERAL SIDE OF THE BUDGET EQUATION  any estimate of the federal government   s future cost obligations are also depen...
JASON J. FICHTNER  Figure 1. FY2013 Medicaid Enrollees Adult,     24        Child,     50       Aged,     9        Disable...
States     are     required     to     cover     acute     health     services,     including     hospital     and     phy...
JASON J. FICHTNER  Table 1. Federal Medical Assistance Percentages, FY2013 State  FMAP      State  FMAP      State  FMAP  ...
THE FEDERAL SIDE OF THE BUDGET EQUATION  the    threatened loss of 10 percent of a State   s overall budget is economic dr...
JASON J. FICHTNER  Figure 2. Projected Medicaid Expenditures       1,000                 900            Total     Federal ...
THE FEDERAL SIDE OF THE BUDGET EQUATION  Figure 3. Medicaid Expenditures as a Percentage of Total US Health Care Expenditu...
JASON J. FICHTNER  Figure 5. Medicaid Expenditures as a Share of Total State Budgets  Medicaid, 24   All Other, 38  Transp...
THE FEDERAL SIDE OF THE BUDGET EQUATION  with the federal government, or opt for a complete federally established and faci...
JASON J. FICHTNER  U NCERTA I N T Y SU R ROU N DI NG GROW TH I N HEA LTH CA R E COSTS  Whether the recent decline in the g...
THE FEDERAL SIDE OF THE BUDGET EQUATION  Figure 6. Real Per Capita Growth in National Health Expenditures  Data note  Figu...
JASON J. FICHTNER  Figure 7. Health Expenditures as a Percentage of Gross Domestic Product  Source  Congressional Budget O...
THE FEDERAL SIDE OF THE BUDGET EQUATION  3.   Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 1...
JASON J. FICHTNER   publication  8332, Henry J. Kaiser Family Foundation, Menlo Park, CA, July 2012 , http   kff.org healt...
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CHAPTER 4   THE STATE SIDE OF THE BUDGET EQUATION NINA OWCHARENKO  M  edicaid consumes a significant portion of state budg...
THE STATE SIDE OF THE BUDGET EQUATION  The current federal   state funding structure creates conflicting incentives that p...
NINA OWCHARENKO  percent by 2020. However, this enhanced match is only for the newly eligible population. States will cont...
THE STATE SIDE OF THE BUDGET EQUATION  Total     State     Expenditures     for     Elementary     and     Secondary      ...
NINA OWCHARENKO  spent on adults and children.15 State-level spending on the elderly and disabled ranged from a high of 77...
THE STATE SIDE OF THE BUDGET EQUATION  Figure 2. Total Medicaid Spending and State Medicaid Spending, Historical Total    ...
NINA OWCHARENKO  states that chose not to expand their Medicaid program to childless adults would lose only the enhanced f...
THE STATE SIDE OF THE BUDGET EQUATION  Figure 3. 2011 and 2021 Per Enrollee Expenditures, by Category  2011     and     20...
NINA OWCHARENKO  increases in the Federal matching rate, the States    share of Medicaid expenditures have grown rapidly o...
THE STATE SIDE OF THE BUDGET EQUATION  states. However, such changes have been more limited than in previous years. Accord...
NINA OWCHARENKO  Commission     In 1995, 15 percent of Medicaid enrollees were enrolled in such an arrangement. By 2011, h...
THE STATE SIDE OF THE BUDGET EQUATION  state and federal levels. States are driven to leverage as many federal dollars as ...
NINA OWCHARENKO  CONCLUSION  The fiscal challenges facing Medicaid are real. As the GAO report on the state and local fisc...
THE STATE SIDE OF THE BUDGET EQUATION  Kaiser Family Foundation,    Medicaid  An Overview of Spending on    Mandatory    v...
NINA OWCHARENKO  34.  Smith et al.,    Medicaid in a Historic Time of Transition,    25. 35.  Vernon Smith et al.,    Low ...
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PART 3   THE AFFORDABLE CARE ACT AND MEDICAID
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CHAPTER 5   MEDICAID UNDER THE AFFORDABLE CARE ACT CHARLES P. BL AHOUS  T  he 2010 passage of the Patient Protection and A...
MEDICAID UNDER THE AFFORDABLE CARE ACT  newly eligible population in the first three years of 2014   16, a percentage that...
CHARLES P. BLAHOUS  Projected     Federal     Medicaid     Costs,           Figure 1. Projected Federal Medicaid Costs, Wi...
MEDICAID UNDER THE AFFORDABLE CARE ACT  Medicaid Services  CMS . In its 2012 actuarial report, the Office of the Chief Act...
CHARLES P. BLAHOUS  adults with incomes effectively up to 138 percent of the FPL. In effect, the Medicaid expansion is an ...
Post-     ACA,     States     Are     Projected     to     Finance           Higher     Percentages     of     Total     M...
CHARLES P. BLAHOUS  expect their total expenditures to rise significantly if they expand Medicaid. A Henry J. Kaiser Found...
MEDICAID UNDER THE AFFORDABLE CARE ACT  federal government has paid 57 percent of the cost of Medicaid coverage for those ...
CHARLES P. BLAHOUS  insurance  employers  other than the smallest businesses  were generally to be assessed a penalty if t...
MEDICAID UNDER THE AFFORDABLE CARE ACT  total average annual insurance value in 2022 for individuals in this income range ...
CHARLES P. BLAHOUS  whether states that expanded up to 100 percent of FPL would still receive the ACA   s enhanced federal...
MEDICAID UNDER THE AFFORDABLE CARE ACT  CONCLUSION  The passage of the ACA in 2010 will dramatically increase total Medica...
CHARLES P. BLAHOUS  NOTES 1.   Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119  2010   codi...
MEDICAID UNDER THE AFFORDABLE CARE ACT  table 3, http   medicaid.gov Medicaid-CHIP-Program-Information By-Topics  Financin...
CHARLES P. BLAHOUS  expansion optional, the Court exposed this obscure mistake that had been buried in 906 pages of legisl...
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CHAPTER 6   A PHYSICIAN   S PERSPECTIVE DARCY NIKOL BRYAN, MD  S  ocioeconomic factors play a large role in health but his...
A PHYSICIAN   S PERSPECTIVE  place focus heavily on providing insurance, with little regard to access to health care or ou...
DARCY NIKOL BRYAN, MD  a    right.    The concept of rights springs up in public policy regularly  for example, the right ...
A PHYSICIAN   S PERSPECTIVE  basis of need, merit, or strict equality 8 Narveson states the following     No one should be...
DARCY NIKOL BRYAN, MD  to the states was eventually limited by the Supplementary Security Income program of 1972, which jo...
A PHYSICIAN   S PERSPECTIVE  federal poverty level  FPL . This establishes Medicaid as a platform for aiding coverage of m...
DARCY NIKOL BRYAN, MD  In 2011, California was at the top of the list of states for a budget shortfall, in the amount of  ...
A PHYSICIAN   S PERSPECTIVE  Under the law, IPAB recommendations are limited, and may not raise costs to beneficiaries, re...
DARCY NIKOL BRYAN, MD  FROM PH ILOSOPH Y TO PR ACTICE  ON E PH YSICI A N   S EX PER IENCE  When I was a new graduate from ...
A PHYSICIAN   S PERSPECTIVE  worst shortage of physicians in California  about 40 primary care doctors and 70 specialists ...
DARCY NIKOL BRYAN, MD  COST OF MEDICIN E  Why is medicine so expensive  Culturally, the western biomedical model framing d...
A PHYSICIAN   S PERSPECTIVE  words, health care providers must do something for higher compensation. As for professional l...
DARCY NIKOL BRYAN, MD  past the point at which the marginal utility of an additional service is equal to its marginal cost...
A PHYSICIAN   S PERSPECTIVE  bargaining power in regional markets. And as Porter has shown, our current assessment of valu...
DARCY NIKOL BRYAN, MD  to be an effective cornerstone of health care reform, doctors will need to be fully on board. The m...
A PHYSICIAN   S PERSPECTIVE  Medicaid enrollees and found other determinants had a strong influence as well, including pra...
DARCY NIKOL BRYAN, MD  of scale to counteract the increasing administrative and regulatory requirements of practicing medi...
A PHYSICIAN   S PERSPECTIVE  by   1   extending public insurance to undocumented foreign-born women   2  increasing income...
DARCY NIKOL BRYAN, MD  women in absolute poverty were socially marginalized, therefore did not enroll in Medi-Cal and obta...
A PHYSICIAN   S PERSPECTIVE  have an equally strong or stronger association with county mortality rates compared to access...
DARCY NIKOL BRYAN, MD  less sensitive to further extensions in health care   we are reaching the limits of medicine. At th...
A PHYSICIAN   S PERSPECTIVE  CONCLUSION  The essential question is, how can we ever achieve adequate health care with so m...
DARCY NIKOL BRYAN, MD  skills   and capital. Advances in medical technology and interventions have made huge strides in pr...
A PHYSICIAN   S PERSPECTIVE  10.  Colleen Grogan and Eric Patashnik,    Between Welfare Medicine and Mainstream Entitlemen...
DARCY NIKOL BRYAN, MD  31.  T. S. Jost,    The Independent Medicare Advisory Board,    Yale Journal of Health Policy, Law ...
A PHYSICIAN   S PERSPECTIVE  53.  Ibid. 54.  Michael Porter,    What Is Value in Health Care ,    NEJM 363, no. 26  2010  ...
DARCY NIKOL BRYAN, MD  Engaging Challenging Populations in Disease Management Programs  The Medicaid Experience,    Dis Ma...
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PART 4   MEDICAID   S HEALTH CARE FAILURES AND POSSIBLE REFORMS
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CHAPTER 7   REFORMING MEDICAID JAMES C. CAPRETTA  T  he Medicaid program today bears little resemblance to the program Con...
REFORMING MEDICAID  using the program as a means of tapping federal taxpayers to solve their budgetary problems. The metho...
JAMES C. CAPRETTA  THE WA I V ER OPTION  Medicaid rests on an uneasy federal   state relationship. The federal government ...
REFORMING MEDICAID  The tension that the steady increase of federal control over Medicaid has created in the relationship ...
JAMES C. CAPRETTA  expected to be discontinued. Similarly, successes would presumably influence national policy making for...
REFORMING MEDICAID  2013, the Centers for Medicare and Medicaid Services  CMS  finally granted a one-year extension for th...
JAMES C. CAPRETTA  cost. To prevent the loss of funding, Governor Romney, a Republican, worked with the state   s Democrat...
REFORMING MEDICAID  To some extent, ideology has played a role in the attitude of various administrations toward state Med...
JAMES C. CAPRETTA  neutrality entails far more subjective judgments than any of the participants would care to admit. The ...
REFORMING MEDICAID  favorable judgments on how to calculate the state-specific Medicaid spending baseline, and thus provid...
JAMES C. CAPRETTA  taxpayers. This is how the state children   s health insurance program has been structured since enactm...
REFORMING MEDICAID  proposals try to correct for large gaps between states by indexing the block grant amounts at differen...
JAMES C. CAPRETTA  Still, concerns about the effect that a block grant might have on health services for the vulnerable ha...
REFORMING MEDICAID  like to pursue more market-driven Medicaid reform could move directly to convert the program from what...
JAMES C. CAPRETTA  by improving the services available for those who remain in the community. However, some state resident...
REFORMING MEDICAID  aspects of the program. That is why the health care law passed in 2010 required 100 percent federal fu...
JAMES C. CAPRETTA  May 2013 Medicaid Baseline,    May 2013, http   www.cbo.gov sites default files  cbofiles attachments 4...
REFORMING MEDICAID  Law,    Boston Globe, March 30, 2010, http   www.boston.com news health  articles 2010 03 30 romney_de...
CHAPTER 8   HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM THOMAS P. MILLER  T  he Patient Protection and Affordable Care Act ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  numbers of Medicaid patients continued to shrink, and the quality of care prov...
THOMAS P. MILLER  The distortions in today   s open-ended Medicaid matching program for federal financial support that enc...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  R EPEA L A N D R ESISTA NCE, W ITHOU T R EFOR M, IS NOT SU FFICIEN T  Even tho...
THOMAS P. MILLER        Developing a compelling political rationale        Facilitating opportunities for innovation  This...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  per year and overall national health spending per capita by 5.6 percent per ye...
THOMAS P. MILLER  can continue to reimburse health care providers at rates substantially below those for private insurance...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  Under FMAP rules, the open-ended federal reimbursement of at least half, and o...
THOMAS P. MILLER  federal funding commitments will be reallocated differently among the states, how generous the block gra...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  promised levels of Medicaid services and health care quality. Moreover, simply...
THOMAS P. MILLER        Design benefit packages that best meet the demographic, public health, and cultural needs of each ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  health care when it delivers more value, but redirect our resources to other i...
THOMAS P. MILLER  employer-sponsored insurance with defined-contribution payments for both kinds of insurance. This could ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  some additional costs if they chose to enroll in more expensive coverage optio...
THOMAS P. MILLER  Other proposals to privatize a substantial portion of current Medicaid coverage with equal or better pri...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  relatively inexpensive to cover under Medicaid. Annual health care costs and i...
THOMAS P. MILLER  Managed care for an increased share of Medicaid beneficiaries is not any sort of universal cure-all. Its...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  A cautionary note comes from a recent study by Duggan and Hayford that examine...
THOMAS P. MILLER  most vulnerable Americans with greater reliance on more decentralized, market-based choice and competiti...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  into higher-quality private insurance coverage by offering definedcontribution...
THOMAS P. MILLER  reexamination of obsolete federal Medicaid rules for mandatory versus optional benefits.32 CONCLUSION  T...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  NOTES 1.   Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 12...
THOMAS P. MILLER  8.   A somewhat countervailing dynamic will be produced by a so-called    woodwork    effect that might ...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  which states can apply. Section 1115 Research   Demonstration Projects provide...
THOMAS P. MILLER     Medicaid and CHIP  Enrollment, Benefits, Expenditures, and other Characteristics of State Premium Ass...
HOW TO ACHIEVE SUSTAINABLE MEDICAID REFORM  individuals with income above 100 percent of the FPL. Centers for Medicare and...
CHAPTER 9   MEDICAID AND HEALTH ROBERT F. GR ABOYES  T  he expansion of Medicaid is a central component of the Patient Pro...
MEDICAID AND HEALTH  Given these uncertainties, it is an appropriate time to evaluate the efficacy of Medicaid as an insti...
ROBERT F. GRABOYES  poor coverage, care, and outcomes and warns that Medicaid critics who favor market approaches frequent...
MEDICAID AND HEALTH  surprisingly little to improve its recipients    health and in some ways may even harm them indirectl...
ROBERT F. GRABOYES  The ACA aims to expand Medicaid enrollment by roughly 15 million individuals.13 But eligibility is bas...
MEDICAID AND HEALTH  In sum, Medicaid has a longstanding problem enrolling those who are eligible. The eligibility require...
ROBERT F. GRABOYES  of Medicare .23 The ACA included temporary increases in Medicaid reimbursement rates, but the rollout ...
MEDICAID AND HEALTH  covered under the state   s post-1985 plan. The child   s plight became the subject of intense nation...
ROBERT F. GRABOYES  excess demand is reduced as wait times and other inconveniences increase. However, as the Oregon examp...
MEDICAID AND HEALTH  outcomes than an individual on Medicaid.47 Even after adjusting for risk factors, Medicaid patients h...
ROBERT F. GRABOYES  W HER E TO GO  The growing body of ambiguous evidence ought to raise questions about how America provi...
MEDICAID AND HEALTH  And the evidence is strong that doing so would be detrimental to their coverage, care, and health. An...
ROBERT F. GRABOYES  Third, Washington has aimed far too low. We should not seek to    bend the cost curve,    but rather t...
MEDICAID AND HEALTH  across the broad landscape of health care. Why not  Either we answer that question soon and uncork th...
ROBERT F. GRABOYES  http   www.kaiserhealthnews.org Columns 2011 June 061511howardparente.aspx. 5.   National Federation o...
MEDICAID AND HEALTH  22.  http   www.mcclatchydc.com 2013 05 13 191105 most-doctors-still-reject -medicaid.html. 23.  Step...
ROBERT F. GRABOYES  41.  Scott Gottlieb,    Medicaid Is Worse Than No Coverage at All,    Wall Street Journal, March 10, 2...
MEDICAID AND HEALTH  59.  R. Pear,    States Urged to Expand Medicaid with Private Insurance,    New York Times, March 22,...
APPENDIX   A MEDICAID TIMELINE 1798   The Marine Hospital Act  1798  became the federal government   s first foray into th...
APPENDIX  A MEDICAID TIMELINE  1993   States begin expanding Medicaid under section 1115 waivers.  1997   Balanced Budget ...
ACRONYMS AND ABBREVIATIONS ACA  AEI  AFDC  ARRA  CBO  CHIP  CMS  DSH  FMAP  FPL  FY  GAO  GDP  HCFA  HHS  HIFA  HSA  IGTs ...
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ABOUT THE CONTRIBUTORS Joseph Antos is the Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American E...
ABOUT THE CONTRIBUTORS  James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow ...
ABOUT THE CONTRIBUTORS  Thomas P. Miller is a resident fellow at the American Enterprise Institute. He served as a member ...
ABOUT THE CONTRIBUTORS  Nina Owcharenko is the director of the Center for Health Policy Studies. She oversees the Heritage...
ABOUT THE MERCATUS CENTER AT GEORGE MASON UNIVERSIT Y The Mercatus Center at George Mason University is the world   s prem...
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